The path from knowledge to better decision making is not a straight one
The Center for Retirement Research at Boston College releases an interesting new paper reminding us why more knowledge does not automatically mean better decision making. The paper looks at how annual social security statements affect people’s knowledge about social security and their decision about when to take it. About 15 years ago, the U.S. government began mailing a paper statement of a worker’s past earnings along with an estimate of their benefits at selected claiming ages. The purpose of the statement was to help workers make smarter decisions about retirement plans.
Looking at longitudinal survey data of workers aged 55-70, researcher Giovanni Mastrobuoni finds that the social security statement does increase worker knowledge about benefits. When asked to provide an estimate of how much social security they expect to receive, workers received a statement were more likely to provide a benefit estimate–and a more accurate one at that. (Note: The survey’s timing allows Mastrobuoni to distinguish between workers who had and had not received statements).
But when looking at how this knowledge affects their retirement plans, and whether to continue working another year or begin to collect social security, there is no clear evidence showing that people use it.
In short, it appears that the Statement does not improve individuals’ responsiveness to retirement incentives. This result could mean that people are behaving optimally before they receive the Statement or that the benefits they gain from reading the Statement are relatively small. Further research in this area is needed.
Cass Sunstein is currently the Administrator of the White House Office of Information and Regulatory Affairs and has no affiliation with the Nudge blog.
The Nudge blog is edited by John Balz.
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